The Securities and Exchange Board of India has allowed private equity funds, distressed assets funds and real estate investment vehicles registered as Category II alternative investment funds to invest in higher-risk listed debt securities that are rated ‘A’ or below.
“Investments of Category II AIFs in listed debt securities rated A or below will be treated as akin to investments in unlisted securities for the purpose of their compliance with minimum investment conditions in unlisted securities,” SEBI said in a press release after the first board meeting under new chairman Tuhin Kanta Pandey.
The decision comes after the capital markets regulator proposed in February to ease the norms related to investments by Category II AIFs in unlisted securities.
SEBI noted that Category II AIFs are required to hold a majority of their investments in unlisted securities. However, recent changes to its listing norms require that any entity that has issued listed debt securities can issue fresh debt only in listed form. This can lead to a situation where debt securities that could have been unlisted will now have to be listed.
“The resultant drop in availability of unlisted debt securities can come in the way of AIFs complying with the minimum investment norms in unlisted securities,” SEBI said, adding that its decision will also give a fillip to issuance of and trading in lower-rated debt securities.
At its board meeting, SEBI also decided to set up a committee to review provisions related to its members' conflict of interest and approved doubling the assets under management threshold to Rs 50,000 crore for foreign portfolio investors who need to provide detailed disclosures, including the names of all stakeholders.
